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Thursday, September 8, 2016

The Sale of DG3 to Resilience Capital Partners

DG3, a significant player in the NYC metro, national and international market for commercial and financial printing, has entered another phase of its storied existence of acquisitions, going public, sale of the company, management buyout, return of the founder, sale to private equity and now a secondary sale to private equity and special situation fund Resilience Capital Partners.

This latest transaction for DG3 offers the opportunity to look back at the company’s history, provides relevant insight into today’s market and suggests possible prognostication for the future. As a professional involved in several hundred M&A transactions in the printing and related industries, I view the announcement that DG3 was sold to Resilience Capital Partners from a three-fold perspective.

For readers who don’t know DG3 (Diversified Global Graphics Group), the company is considered by many, including this author, to be a leading company with strong management, significant market presence, and a consistent M&A presence. It has ranked in the Printing Impressions Top 400 for many years, most recently listed as having $140 million annual revenues (self-reported).

Historical reflection

Let’s not forget that DG3 traces its origins back to legendary entrepreneur Michael Cunningham, who pulled together a series of ground-breaking roll-ups in the 1990’s to transform his company from a small financial print broker to the multinational Cunningham Graphics International, with offices in New York City, London, Hong Kong, as well as a large manufacturing facility in New Jersey. At the dawn of the dotcom boom, the company joined in the party and went public on the NASDAQ.

In a move now considered to be perfect timing at the height of the market in June 2000, Cunningham shocked the printing industry by selling to payroll processing company ADP which also processed millions of public company annual reports and statements. In a series of transactions from 2004 to 2006, a management group bought the business back from ADP, one piece at a time. They re-tooled the company with various well-executed strategic initiatives that put the company to the forefront of technology, creative services, print production and distribution in specialized niches such as pharmaceuticals and investment banking. In 2007, Michael Cunningham (now Dr. Cunningham) pulled a “Steve Jobs” and returned to lead the transition of the company, changing the company name to DG3.

The next year DG3 received a major equity investment from a private equity firm, Arsenal Capital Partners. Under Arsenal’s ownership, the company has completed no less than six acquisitions and invested in the transformative high speed continuous feed inkjet printing technology.

Current relevanceThe announced sale of all of the company’s equity interests to a private equity fund is relevant because it shows that size matters. Based on Resilience Capital Partners’ criteria that the fund seeks “special situations,” as well as the investment banker chosen to advise on the transaction, SSG Capital Partners, we can infer that DG3 was leveraged and needed to bring in fresh equity to rebalance the capital structure.

My experience shows that smaller and less robust entities than DG3 almost always are unable to attract new money from professional investors. Most often, smaller entities transition from private ownership via a sale of intangibles/book-of-business. If excessive debt is part of the equation, the transaction will involve a non-bankruptcy debt restructuring to properly unwind the assets and liabilities. The scale of DG3, and its impressive market presence and capabilities, was clearly sufficient to attract institutional investment and overcome impediments that might prevent a smaller company from surviving as a stand-along entity.

Future prognostication

In recent years, other major firms, such Sandy Alexander, also based in New Jersey and with multiple offices nationally, have survived various financial challenges and successfully restructured to remain independent, competitive and poised for growth as the industry consolidates further. (Sandy Alexander announced a management buyout in July, 2013.) It’s encouraging to see these leading printing companies reinvent themselves, in some ways serving as a model for their smaller brethren. It’s my observation, based on The Target Report and my own personal experience, that the pace of plant closures and orderly liquidations has slowed. It may be illustrative that if the “big guys” can make it, so can the “little guys” as a level of stability returns to the market for commercial printing and related services.– John Hyde

1 comment:

Good information you shared. Since payroll is very common in companies and it need to maintain properly. Many corporate companies using services of payroll management system and outsource payroll Services small work so that they can concentrate on other organization development

About the Author of The Hyde Opinion

Contact John Hyde at John@GraphicArtsAdvisors.com or 646-220-4431 for a confidential discussion about how John and GAA can assist you and your company.

John Hyde is a Director of Graphic Arts Advisors. John has in excess of twenty five years as one of the leading consultants to the printing, mailing and graphics communications industry in the areas of mergers and acquisitions, business valuations, family succession planning, and restructuring. John brings together expertise from his legal background, mergers and acquisitions practice, and printing industry-specific acumen to his role at GAA.

John began his career as an attorney practicing law with the firm of Chadbourne & Parke LLP in New York. Subsequently, John founded Rampart Associates in 1990, a highly respected national consulting firm focused exclusively on the printing, packaging and related industries. Rampart Associates was acquired by the National Association of Printing Leadership (NAPL) in 2004, establishing NAPL’s business advisory practice as a significant source for M&A advisory services in the printing industry. John served as NAPL Senior Vice President, led the M&A advisory team, and was instrumental in expanding the market presence and relevance of the NAPL consulting practice. In May 2013 John returned to the private practice of law and re-focused his efforts on assisting select clients with non-bankruptcy debt restructurings, orderly liquidations and M&A advisory services.

John has authored numerous articles for industry publications, co-authored Strategic Growth: The NAPL Guide to Mergers & Acquisitions which was published in 2012, and is a sought-after source in the trade press for his knowledge of consolidation trends in the printing industry. John has been a featured speaker at numerous trade conferences including Graph Expo, Print, and Dscoop.

John holds a BA from Colgate University and earned his JD from Tulane Law School.

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